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6. CIRP. Jason Smith is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month S
6. CIRP. Jason Smith is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month S interest rate Six-month SFr interest rate SFr1.6627/S SFr1.6558/S 3.59% per year 3.0% per year a. Ignoring transaction costs, is there an interest rate arbitrage possibility? [Check if the covered interest rate parity holds.J b. Now assume that the forward exchange rate is not given, but that the spot exchange rate and two interest rates are given as above. Determine the forward exchange rate. c. Going back to the four numbers given above, what steps would be needed to make an arbitrage profit? Assuming that Jason Smith is authorized to work with $1,000,000 for this purpose, how much would the arbitrage profit be in dollars
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